Difference between Payment Gateway and Payment Aggregator www.deekpay.com

Online transactions have become standard practice, so it's important for organisations to have reliable and securePayment Solutionsto meet the needs of their customers. Effective payment solutions enable organisations to streamline operations, automate payment processing and effectively manage financial transactions, ultimately helping them to succeed in the competitive online marketplace. Among the various entities involved in a payment system, thePayment Gatewayrespond in singingPayment aggregatorIt's especially important for merchants.

What is a payment gateway?

Payment gateways act as intermediaries between merchants and financial institutions (e.g. acquiring banks, networks, etc.). A payment gateway is a technology that ensures the secure transmission of payment data from the merchant to the issuing bank through acquiring banks and networks.

In a nutshell, a payment gateway is a service provider that enables merchants to accept payments from their customers on their websites or apps through an acquiring bank. Payment gateways are usually associated with card transactions. Even in the case of UPI In this case, the acquiring bank will also use a technical solution with similar functionality to the payment gateway.

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In order to understand how a payment gateway works, let us first understand all the entities associated with it.

acquiring bank

An acquiring bank is a financial institution that processes customer payments via debit, credit and UPI on behalf of merchants. It transmits payment information (e.g., payment amount and payment instrument details (e.g., debit/credit card information) to the issuing bank over the network and receives the payment from the issuing bank.

issuing bank

As the name suggests, the issuing bank issues credit/debit cards on behalf of the network orVirtual Payment Address(In case of UPI payments). The issuing bank authorises and releases the funds to the acquiring bank on behalf of the customer.

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reticulation

Networks act as intermediaries between acquiring and issuing banks. The network establishes a connection between the merchant's acquiring bank and the customer's card-issuing bank to validate payment details and available funds/credit in the customer's account in order to process the payment.

When a customer makes a payment on a merchant's website, the acquiring bank sends the payment information to the payment gateway, which then processes the transaction. It is important to note that the payment gateway does not transfer funds; it only transmits the payment information. The power to transfer funds rests solely in the hands of the acquiring and issuing banks.

IndiaNotable payment gateways include Cybersource, MasterCard Payment Gateway Services (MPGS), ISG and Financial Software & Systems (FSS).

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What is a payment aggregator?

A payment aggregator is a payment solution or platform provider that aggregates a variety of payment options (e.g. cards, UPI, internet banking, wallets and alternative credit products) onto a single platform by working with various processing entities such as acquiring banks, direct banks (in the case of internet banking) and issuers of wallets and alternative credit products. Merchants can integrate with payment aggregators and offer their customers a variety of payment options to make payments.

Simply put, payment aggregators provide merchants with multiple payment options so that their customers can pay using their preferred payment method. In addition, payment aggregators are also responsible for funds settlement, i.e., the transfer of funds from banks and other issuing entities to merchants.

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Payment aggregator roles and responsibilities

Payment Aggregator enables businesses to accept payments by working with acquiring banks to integrate various payment methods. Below are the main functions and responsibilities of a payment aggregator:

Merchant on-boarding: Payment aggregator on-boarding merchants to provide customers with payment methods such as bank cards, UPI, wallets, etc. Transaction Processing: They collect payment information from merchants and send it to the acquiring bank or the relevant PSP or bank to process the transaction. Settlement: Payment aggregators handle settlement for merchants, collecting payments from partner entities (banks, issuers, PSPs) and crediting them to the merchant account within a specified period of time (T+0, T+1, T+2 days). Refunds and chargebacks: process refunds for merchants and coordinate with acquiring banks and merchants to resolve chargebacks or disputes. Support: Payment integrators support merchants with integration and operational issues. Compliance: they ensure compliance with RBIThe security standards and compliance set out by the Bankcard Network and its banking partners, thus providing a secure payment platform for merchants and their customers. Dashboards: Payment integrators provide merchants with dashboards to track payment-related activity, and some also provide data analytics through the dashboards.

By working with acquiring banks, payment aggregators can enable multiple payment options on a merchant's payment page. The acquiring bank then uses the payment gateway to process the payment information.

Recommended Reading:Reserve Bank of India RBI

Payment Gateways and Payment Aggregators

A payment gateway is an integral part of a payment aggregator. A payment gateway securely transfers customer payment data from a website or application to a payment processor. Payment aggregators, on the other hand, simplify the payment process by combining multiple merchant accounts into one, making it easier for businesses to accept payments without having to set them up separately. While both facilitate online transactions, there are distinct differences between them.

Payment Aggregator Payment Gateway Authorisation Agreement Under the Payment and Settlement Systems Act, non-bank payment aggregators have to be authorised by the Reserve Bank of India. Bank Payment Aggregators are not required to do so as banks already manage the funds in their day to day operations. Bank payment gateways are required to comply with the circular "Guidelines on Risk Management and Code of Conduct for Outsourced Financial Services for Banks" issued by the Reserve Bank of India and any subsequent circulars. Non-bank payment gateways should comply with the guidelines issued by RBI for banking technology providers. Capitalisation Guidelines On 15 March 2021, non-bank payment aggregators must have net worth of ₹1.5 billion and on 31 March 2023, net worth of ₹2.5 billion. Thereafter, their net worth must remain above ₹2.5 billion. The Reserve Bank of India has not imposed capitalisation guidelines for payment gateways. The regulatory structure imperative is that payment aggregators must be professionally managed and their promoters must meet appropriate criteria set by RBI. The Reserve Bank of India has not imposed any different governance guidelines for payment gateways. Prevention of Money Laundering Payment aggregators must comply with the guidelines issued by the Regulatory Department of RBI in its 'General Instructions - Know Your Customer (KYC) Directions' and any modifications made thereto. Payment Gateways must comply with the guidelines issued by the Department of Regulation, Central Bank of India in its "General Instructions - Know Your Customer (KYC) Directions" and any modifications made to them. Merchant Onboarding Procedures They must have a merchant onboarding policy approved by the Board of Directors. They must ensure that merchants do not store customer bank card information. In addition, they are responsible for ensuring PCI-DSS and PA-DSS compliance.RBI does not have specific guidelines for merchant onboarding. The services offered provide additional services such as reporting and analytics. This service provides transaction processing services only. The integration requirement is to integrate with only one service provider. This requires you to integrate with each payment method or bank separately.

How to choose a payment gateway and payment aggregator?

The choice between a payment gateway or a payment aggregator depends on the specific needs and resources of the organisation. Payment gateways are ideal for large organisations with high transaction volumes and the technical capacity to handle complex integration and compliance requirements. A payment gateway is ideal for large organisations with high transaction volumes and the technical capacity to handle complex integration and compliance requirements. It provides greater control and has the potential to reduce transaction fees for large transactions. Payment aggregators are ideal for small and medium-sized businesses looking for a quick, easy setup and a variety of payment options. Payment aggregators simplify the onboarding process and take care of compliance and risk management, though they typically charge higher transaction fees. Ultimately, choosing a payment aggregator depends on the size of the business, the volume of transactions, the level of technical proficiency, and the preference for ease of use versus control and customisation.

concluding remarks

In short, the choice between a payment gateway or a payment aggregator depends on the size and needs of the business. Larger businesses that favour control and customisation usually choose a payment gateway as it offers lower costs for high transaction volumes. Smaller businesses or those that prioritise simplicity of setup and variety of payment options often choose payment aggregators, albeit with slightly higher transaction fees. Understanding these differences and aligning them with your business goals ensures that you choose the best payment solution to improve efficiency, customer satisfaction, and overall success in the digital marketplace.

Atpay - we are a professional provider of payment solutions and have been deeply involved for many years inIndia PaymentsWe have successfully provided payment functions for countless customers at home and abroad. We are fully confident in payment integration and high-risk payment processing, and welcome inquiries and exchanges.